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Suggested retail prices with downstream competition

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  • S. Fabrizi
  • S. Lippert
  • C. Puppe
  • S. Rosenkranz

Abstract

We analyze vertical relationships between a manufacturer and competing retailers when consumers have reference-dependent preferences. Consumers adopt the manufacturer’s suggested retail price as their reference price and perceive losses when purchasing above the suggested price and gains when purchasing below it. In equilibrium, retailers undercut price suggestions and the manufacturer suggests a retail price if consumers are sufficiently bargain-loving and perceive retailers as sufficiently undifferentiated. The manufacturer engages in resale price maintenance otherwise. Consumers can be worse off with suggested retail prices than with resale price maintenance, prompting a rethinking of the current legal treatment of suggested retail prices.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/268270/12-13.pdf
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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 12-13.

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Length: 22 pages
Date of creation: 22 Feb 2013
Date of revision:
Handle: RePEc:use:tkiwps:1213

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Related research

Keywords: suggested or recommended retail prices; resale price maintenance; reference-dependednt preferences; vertical restraints; competiton law and policy;

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Cited by:
  1. Gärtner, Dennis L & Buehler, Stefan, 2009. "Making Sense of Non-Binding Retail-Price Recommendations," Department of Economics, Working Paper Series qt51z312zt, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Lisa Bruttel, 2014. "The Effects of Non-binding Retail-price Recommendations on Consumer and Retailer Behavior," TWI Research Paper Series 93, Thurgauer Wirtschaftsinstitut, Universität Konstanz.

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